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Fears have risen recently that the global economy may be heading for another downturn, with many worried about the scale of gains in global stock markets and the huge volatility in trading of virtual currencies like Bitcoin.

But experts at the World Economic Forum in Davos, Switzerland have yet to come to a consensus on whether we’re headed for another global crisis.

What could cause it?

A leading British investment manager says that a catastrophic IT crash that puts markets out of action for several days could be the catalyst to another financial crisis.

Read: Global economy shows signs of ‘virtuous cycle,’ El-Erian tells CFA Calgary

Anna Richards, chief executive of London-based M&G Investments, says the next financial crisis is unlikely to emerge from a geopolitical event, as markets are used to dealing with such events on a regular basis.

More worrying for Richards are the technological innovations that have fundamentally altered the way markets operate and that investors are “somewhat blind to.”

She says, “We all have businesses which are absolutely reliant on a very small number of people who provide the pipes that effectively we all put our business though.”

How markets react if no one could trade for “one, two or three days” would be “kind of interesting,” she adds.

Read: Investing in volatile energy stocks

And since stock markets around the world are flying high amid a synchronized global upturn, a leading U.S. investor is warning of a potential “reckoning.”

Stephen Schwarzman, chairman and CEO of Blackstone, notes the markets have responded to a positive global economic growth story. It is, he says, a time of “enormous ebullience.”

However, he says there are “lurking” geopolitical risks that could knock markets off track and there will come a time when some of these problems are “not contained.”

U.S. stock markets have been particularly strong, with the Dow Jones industrial average on a run of record highs on the back of confidence around the U.S. economy and President Donald Trump’s tax reform package.

No downturn yet

Meanwhile, one expert on global financial crises is downplaying fears that the world is set for another downturn.

Read: When following smart money is stupid

A decade on from the last crash, professor Kenneth Rogoff from Harvard University says there is “no plan A” to deal with another crisis given that interest rates remain at super-low levels and public finances remain stretched.

However, Rogoff said at the World Economic Forum that financial crises have a “long afterlife” and that “we’re actually at the tail-end of the last one.”

Still, he says China is the country that’s exhibiting many of the characteristics of a “typical financial crisis building up.”

Originally published on Advisor.ca
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Frank E. Heisz

Now is the time to stop borrowing, pay down debt and build up cash and short term GICs and bonds. Be careful out there!

Wednesday, Jan 24, 2018 at 11:59 am Reply

Doug McCaw

What specific characteristics of a “typical financial crisis building up” is China exhibiting?

Wednesday, Jan 24, 2018 at 11:28 am Reply